Chagala in risk of default after shareholder opposes capital increase

Chagala Group Ltd. said that the court ruling that led to the suspension of a plan to issue new shares could cause the company to default on bonds maturing Dec. 1.

It said it will need another source of financing for the redemption of the outstanding indebtedness under the bonds issued by its wholly owned Caspi Ltd. LLP subsidiary. The bonds denominated in Kazakh tenge is equivalent to approximately US$6.7 million. The group said that it will need around US$5.9 million more to fund the redemption before the maturity date.

In addition, the company said that another of the subsidiary's debtors, Al Hilal Bank, said that it intends to accelerate the payment of outstanding loans under a master Murabaha credit facility due November 2019, which amounts to about US$6.5 million.

The bank said that it expects Chagala's ongoing court proceedings to have a negative effect on Caspi's ability to fulfill its obligation on the facility. Caspi is in negotiations with Al Hilal to avoid the potential acceleration.

The facility is guaranteed by Chagala International Holding BV and is secured by properties worth roughly US$6.3 million, according to a news release.

Chagala said that as of Oct. 5, it has yet to identify a new financing option to avoid defaulting on the bond redemption. Options could include equity financing, debt financing or asset disposals. "There can be no assurance that any of the foregoing possible sources of financing will be available to the group," it noted in the release.

The capital increase that would have raised about US$5.8 million for the company was suspended after its shareholder, TIPP Investments PCC, filed a claim against the company and its board members alleging that the plan would prejudice its rights as a shareholder, among other reasons.